What Are Same-Store Sales?
Same store sales or comparable-store sales or like store sales is a method adopted by the management for evaluation of financial growth by evaluating the change in the turnover of an existing outlet in the current time by comparing it with the last year’s figure generated during the same period.
Generally, the companies experience relative positive growth in the total turnover generated by the company comparing to last year’s figures. It happens typically because companies tend to increase their number of outlets and stores, and this results in an increase in the turnover of the company. Still, such a figure does not show the performance of the company as it does not provide enough data for calculating the performance of already existing outlets. This method is a metric commonly used to evaluate the performance of already existing outlets by comparing the turnover generated in the current period to the turnover generated during the same period in the previous year, which makes the comparison fundamental and easy to understand.
Same-Store Sales Formula
The formula is given below
- Total Sales (in the current year) = Sales recorded in the period taken for the current year for the particular outlet;
- Total Sales (in the previous year) = Sales recorded in the same period but the previous year for the same outlet and;
- The percentage change in sales shows the increase or decrease in the total sales recorded by the outlet in the current.
- Year compared to the total sales recorded in the previous year.
For understanding the concept better, let’s take an example;
For example, a company ABC Inc. is a manufacturing company, and it has ten outlets throughout the state. The management wants to evaluate the performance of its two oldest outlets, ‘P’ & ‘Q,’ through evaluating the sales booked in February & March.
Following are the sales figures available for the outlets, evaluate the performance of the outlets through the Same Store Sale method:
Let’s evaluate the performance of Outlet – P & Outlet – Q by using this method for both periods’ February’ & ‘March’ –
Performance of Outlet – P for the month of ‘February’ –
Percentage changePercentage ChangePercentage change = (change in value/original value)*100. It is used to calculate the percentage change in the original value. This change could be upward or downward. in Sales = ((20000 /18000) – 1) * 100 = 11.11 %
Performance of Outlet – Q for the month of ‘February’ –
Percentage change in Sales =((22500 / 17500) – 1)*100= 28.57 %
Similarly, performance for March could be evaluated; and the result would be;
Performance of Outlet – P for the month of ‘March’ –
Percentage change in Sales = ((17000/21000)-1)*100 = -19.05
Percentage change in Sales = – 19.05 % (negative since the sale volume decreased)
Performance of Outlet – Q for the month of ‘March’ –
Percentage change in Sales =((17500/20000)-1)*100 = – 12.50 % (negative since the sale volume decreased)
This method utilizes the equivalent figures that are comparable to evaluate the percentage of change and the performance of a part, a store, or an outlet of organization. In the above example, we can evaluate that the figures of the same outlet have been compared with the figures of the same period in both the fiscal years, which makes it more favorable an equivalent comparison. In case of comparison of figures for outlet P & Q for February, there is an 11.11% & 28.57 % increase in total sales of both the outlets respectively in the year 2020, whereas, in March, there is a decrease in total sales by 19.05% in case of Outlet P & 12.50% in case of Outlet Q. So this helps the organization to keep track of its total performance regarding sales and identifying its strong point and weak areas at the same time.
Same-Store Sale Chart could also be formulated for the above example:
It shows the percentage change in sales figures for the period the same is calculated. It helps to evaluate the frequency of fluctuation and derive the stability in the business of the concerned unit or outlet.
Importance of Same-Store Sales
The same sale store is an essential concept for retail chain stores. By using the same sale store concept or metric, management can analyze the performance of the store. By using this metric, management can analyze the growth of a store, whether the sale of the store has increased in comparison to the last period. If sales have increased, what can be the reason? Whether that store has attracted new customers or existing customers purchased more products. Also, management can identify the reason for the declined sales of a store. By using this metric, management would be able to make the decision to open a new store in a new location.
Same Sale Store helps management, investor, and market analyst to analyze the future performance of a store and whether product demand is increasing in the market.
The same sale store metric is useful for management for making decisions regarding the continuation of existing retail stores and opening new retail stores. If a store is not performing well, then management can decide to shut down that particular store. This concept gives a clear picture of the growth of a retail chain, whether the store is performing and growing, or a few corrective actions required for maintaining growth. Investors prefer to see significant growth in a firm or company, this metric gives that comparison, and investors can analyze whether a retail chain is a growing firm or not.
The same Sale Store method utilizes the figure for sales of the already existing store or unit or outlet of a company for the same period in two different fiscal years. Evaluation of such helps the company to keep track of their unit having better performance and the unit with the weaker performance and thus plays a crucial role in decision making procedure for the management to focus on the more vulnerable areas and thus maintaining the overall functionality and performance of the company.
This article has been a guide to What are Same-Store Sales and its definition. Here we discuss formula to calculate same-store sales along with the practical example and interpretation. You may learn more about Investment Banking from the following articles –